Marijuana grower Joe Rey works in a flower room at 3D Denver Discreet Dispensary on Wednesday.

Colorado denying more medical-marijuana business applications

Colorado’s medical-marijuana regulators have rejected business applications at an increasing rate as they near the end of a 3-year-old backlog, according to figures provided by the state.

Since the state began accepting medical-marijuana business applications in 2010, it has approved 1,402 and denied 226 — a rate of about one in seven. Between January and September, the state denied only one application, according to a state report. But since September regulators have acted on 217 applications and denied 51 — a nearly one in four clip — according to figures from the Colorado Marijuana Enforcement Division.

A spokeswoman for the division says that is not a sign regulators have procrastinated in dealing with the most troublesome applicants.

Instead, the spokeswoman, Julie Postlethwait, said the late surge in denials comes down to it taking regulators far longer to deny an application than to approve one because of state due-process laws.

“We can’t do something to a license without due process,” she said.

Meanwhile, regulators on Wednesday unveiled the $1.2 million marijuana-tracking system they hope will keep Colorado cannabis businesses — both medical and recreational — in line. The online system is called MITS, for Marijuana Inventory Tracking Solution, and it requires marijuana businesses to place radio frequency tags on every plant they grow and every bag of pot they move from their grow rooms and their sales rooms.

Information from the tags must be entered into MITS to keep tabs on the marijuana’s location up until its sale. Businesses will also be required to track the weight of their harvested marijuana and enter that into MITS.

“The MITS system is really a critically important tool for our ongoing regulation of the marijuana system in Colorado,” said Ron Kammerzell, the head of the Colorado Department of Revenue’s enforcement division.

The system is expected to be up and running by Jan. 1, when recreational marijuana stores can sell pot to the adult public for the first time. But it has been in development since 2011, when the state hired a Florida company to build the system — only for a subsequent budget shortfall to put the project on ice for a time.

Postlethwait said that shortfall is also partly to blame for the time it has taken state regulators to get through the backlog of medical-marijuana business applications and deny the ones that don’t meet the state’s requirements. Most of the applications in the backlog were from businesses that applied for licenses in 2010 and were allowed to stay open while their applications were pending.

Postlethwait said applications can be denied for a number of reasons — including problems with its location, its operation or its owners. Except in the most extreme circumstances, state regulators will usually give businesses a chance to fix the problem before issuing a notice of denial, she said. While the notice requires the business to shut its doors immediately, the business can still go through a hearing and appeals process that may ultimately end up in court.

If the business loses its appeal, owners must destroy all of their marijuana in the presence of a state investigator, Postlethwait said.

Postlethwait said it is also common for businesses to restructure their ownership to address the state’s concerns — something that causes the state to have to start the application vetting process anew.

The licensing backlog, which regulators have dramatically reduced this year, has received new attention after major federal raids on medical-marijuana businesses in Colorado, many of which were operating with pending applications. Sources have told The Denver Post that the raids were part of an investigation into possible links to Colombian drug cartels.

That fear of black-market diversion is exactly what state officials hope MITS will allay, though they say it is not the only tool they will use in regulating marijuana businesses. They will also be checking video surveillance systems, scouring sales receipts and conducting surprise inspections.

Lewis Koski, the division’s chief of investigations, said the division is budgeted for 25 criminal investigators and six to eight compliance investigators.

“MITS is a material tool,” he said. “But we also understand that it does not substitute for really good police work.”

John Ingold: 303-954-1068, or

Read this story on »